In October 2012, as Superstorm Sandy rocked the East Coast, 75 residents gathered in the Midtown Community School in Bayonne, New Jersey.

The elementary school was operating as an emergency shelter, giving people who were stuck in the severely flooded town a place to stay dry. But the school was much more than a shelter -- it was an experiment in hybrid solar photovoltaics that may herald a coming structural change in the power sector.

Four years earlier, the local school district approached the New Jersey-based installer Advanced Solar Products, which had already developed a 272-kilowatt system for the Midtown school. The school district wanted to figure out how to allow the solar PV to operate during power outages when other systems were required to shut off. The company worked with SMA to modify a commercial inverter and tie it into the emergency diesel generator, allowing the generator to idle at low levels when the sun was shining.

The result was a steep drop in fuel consumption at a time when it was nearly impossible to make diesel deliveries to flood-stricken areas.

"The solar did what it was supposed to do. It worked exactly as planned," said Lyle Rawlings, president of Advanced Solar Products, in an interview.

Although the system was a custom job, making it fairly expensive, Rawlings says his company took the experience to heart. Advanced Solar Products is now working with other commercial facilities to integrate lithium-ion batteries with solar, and plans to make solar-storage systems a bigger part of the business going forward.

"We see this as a thing that's going to develop more and more, and we want to take the lead in development," said Rawlings.

And it's not just emergency backup that makes storage attractive. Now that fast-responding systems like flywheels and lithium-ion batteries can get paid for frequency regulation services in PJM or help reduce onsite demand charges for commercial facilities, storage is emerging as a viable economic alternative.

In one case, Advanced Solar Products was able to pay for a commercial storage system and inverter through frequency regulation payments -- actually making the cost of a hybrid solar-storage system lower than solar alone.

"That, to us, seemed magical, and it told us we could provide this service for a low cost," said Rawlings.

Now that storage is moving beyond simple emergency applications, that "magical" alternative -- while still very site- and market-specific -- is emerging as a potential threat to utilities.

Driven by market changes that reward storage, improving system economics and third-party financing tools, the nascent distributed storage market is on the upswing in the U.S. Witnessing these changes, the country's leading solar installer, SolarCity, has started offering solar paired with storage to commercial customers. And distributed storage providers such as Stem, Intelligent Generation and Green Charge Networks are reaching out to solar developers to form partnerships.

A recent GTM Research report projected that the U.S. commercial storage market could grow to more than 720 megawatts by the end of the decade. Some of that growth will come directly from a closer relationship with the solar industry.

So what does this mean for the power sector's future?

The Rocky Mountain Institute and CohnReznick attempted to answer that question in a new report released yesterday. The analysis looks at the economics of storage-solar systems in the commercial and residential sectors, and projects when mass adoption may start to occur in key markets.

The conclusion: the combination of solar and storage is a "real, near, and present" threat to the way utilities do business.

"The coming grid parity of solar-plus-battery systems in the foreseeable future, among other factors, signals the eventual demise of traditional utility business models," wrote the authors.

Using modeling software from Homer Energy and electricity data from the Energy Information Administration, the analysts looked at a range of technology scenarios in the commercial sector for solar, lithium-ion batteries, and generators working together. In the residential sector, the analysts looked just at solar and batteries.

On their own, the economics of the two technologies are improving steadily. According to the Department of Energy, lithium-ion battery costs have dropped by 50 percent since 2008. And prices could drop as low as $125 per kilowatt-hour in the coming decades. Tesla founder Elon Musk thinks they could drop to as low as $200 per kilowatt-hour in the next few years.

There's been an equivalent drop in residential and commercial solar. According to GTM Research, the average price of an installed solar system (weighted across all sectors) has fallen by 61 percent since the first quarter of 2010.

The RMI/CohnReznick analysis shows a range of other projections for cost forecasts, which illustrate an equally steady decline in the coming decades. Those cost reductions, driven by better hardware, lower module prices, efficient installation techniques and scale, are helping to further drive down system prices.

But what about the combination of the two technologies? Adding storage will increase the cost of a solar system. Although those costs can be addressed by leveraging storage to reduce on-site demand charges or participate in frequency regulation where allowed, the economics vary widely based upon the region.

The analysis looked at five cities: Honolulu, Hawaii; Los Angeles, California; Louisville, Kentucky; San Antonio, Texas; and Westchester, New York.

Under a base-case scenario, which simply factors in existing technologies and market constructs, the authors argue that the combination is only truly competitive in Hawaii, where oil-based generation is extremely expensive. (However, as the previously mentioned case from New Jersey shows, the technology can be competitive at specific sites in other markets.)

Under a more aggressive scenario, which factors in strong technology improvements and deeper use of intelligent efficiency, solar and storage together become competitive much sooner in a broader range of markets -- even becoming a strong alternative in a coal-based state like Kentucky, where electricity prices are relatively low.

Competitiveness in the residential sector will occur later, but there are still opportunities for grid parity by the end of the decade -- or even today -- in several markets.

The timing outlined in the report varies widely depending on a number of technological and market-based factors. But even under the most conservative scenario, the authors conclude that solar and storage together have the potential to massively erode utility revenue.

In the Southeast and Mid-Atlantic markets, these technologies could be less expensive than one-fifth of load by 2024 with no dramatic improvements. That means more than 1.2 million customers in those regions may have the opportunity to virtually disconnect from the power company. Under a more advanced scenario, utilities in those regions could be at risk of losing their traditional relationship with millions more customers.

"In the Southwest, as many as 20 million residential customers could find economic advantage by 2024 with solar-plus-battery systems under our combined improvement scenario. In the Mid-Atlantic, roughly 8 million customers will find favorable economics for solar-plus-battery hybrid systems by 2024 given the same combined improvements. Between the two geographies, this represents over $34 billion in annual utility revenues," wrote the authors.

Earlier this month, former Duke Energy CEO called the power grid a "blank sheet of paper" and predicted that most power plants will need to be replaced by the middle of the century.

"One of the big challenges as we redesign the generation fleet in this country is [figuring out] what this mix will be," Rogers said.

Even with no dramatic changes, the RMI/CohnReznick analysis shows that solar and storage together will be competitive in most regions of the U.S. by 2050. Assuming most of the country's centralized power plants need to be replaced by that time, the relationship between utilities and their customers will be irreversibly changed as more people invest in hybrid systems.

"Utilities operate on a long time horizon, and concerns about grid defection should be creeping toward the forefront of utilities' minds now," said Shayle Kann, senior VP of GTM Research. "In addition, this should be a prime factor in utility considerations regarding changes to net energy metering programs. The more utilities move toward rate structures that impose fixed charges which cannot be reduced through net metering, the greater the incentive for customers to defect."

Utilities are currently worried about what solar may do to revenues, and are working to change net metering policies in order to account for grid costs. But that may only be a short-term fix. If storage continues to gain traction as a viable partner to solar, customers may still have the opportunity to loosen or break ties with their power company.

"Millions of customers...representing billions of dollars in utility revenues will find themselves in a position to cost-effectively defect from the grid if they so choose," concluded the report authors.

Greentech Media (GTM) produces industry-leading news, research, and conferences in the business-to-business greentech market. Our coverage areas include solar, smart grid, energy efficiency, wind, and other non-incumbent energy markets. For more information, visit: greentechmedia.com , follow us on twitter: @greentechmedia, or like us on Facebook: facebook.com/greentechmedia.

Stephen Lacey is a Senior Editor at Greentech Media, where he focuses primarily on energy efficiency. He has extensive experience reporting on the business and politics of cleantech. He was formerly Deputy Editor of Climate Progress, a climate and energy blog based at the Center for American Progress. He was also an editor/producer with Renewable Energy World. He received his B.A. in ...

One of the conditions of the subsidy is that the battery should reduce the peak Feed-in volume of the PV installation with 40%, so the load for the local grid is minimized.It also implies that the Energiewende levy will become lower as less electricity is feeded into the grid.The subsidy is roughly 30% of the investment. Banks deliver loans.

The general idea is that this subsidy will drive the costs of combined PV-panel + storage installations down due to the high volume market that it generates. So much that those will become cost effective and almost all new installations will be equipped with it. Taken into account the recent history of cost decreases of Li-ion batteries (as well other battery technologies) and the expectations of experts, it seems to me a realistic expectation.

Why would anyone want to replace lead acid with lithium ion for stationary? They both only get like 500 cycles. Lithium costs more, too.

However, there is such a thing called the LiFePO4 which costs about as much as its cousen, the li-ion but gets FOUR TIMES the cycling WITHOUT the thermal issues! Still, it may be cheaper for a corporation based utility to include a lead acid battery "division" which would bring the costs of recycling (like every year) down to almost negligable amounts (they may have to have a few lawyers to fight off the "anti-mining" so called enviro's). Eventually, they could do the same with the much better LiFePO4 (and sell to car companies?).

There is NO reason that (500 cycle) batteries should cost any more than about $100 per kWh of storage because I can get a 100 Ah sealed lead acid battery for around $200. That,s just over a kWh at retail.

Perhaps, we should do the right thing and electrify "everything" by use of closed cycle nuclear. It's inherently less expensive and quite literally unlimited (better EROEI, too)!

I don't quite understand what the price "$125 per kilowatt-hour" refers to. It is not the price per KW, right?

Is it a sort of levelized cost? Maybe taking the total cost of the battery and dividing it by all the energy it can give over its lifetime? And the cost of the electricity to charge the battery is not included in the calculation?

If that is the case, then energy from batteries is expensive beyond imagination. $125/KW compared with generation costs of $0.03-$0.08/KW with a conventional power plant indicates that using bateries is 1000x till 10.000x more expensive.

I think it is for actual storage. I can buy a SLA on ebay for about $2 per amp hour (that's for 12v). I figure 1000 watts / 12 = 83Ah. Thus storage should already be down to $125 on the wholesale level, perhaps less should it ever become "utility scale". Maybe, I'm way off and these prices are including the entire 30 year life expectancy of the PV installation, but I highly doubt it.

I found a link that looks reasonable: http://batteryuniversity.com/learn/article/cost_of_power

According to that source, batteries are about 5x as expensive as electricity retail rate, or about 10x generation by a coal power station: $500/MWh, indeed as a levilized cost over the battery lifetime, including electricity for $100/MWh.

The numbers in this article still make no sense to me (and what is an Ah? An Attohenry?).

The Ampere indicates the thickness / volume of the electricity stream per second. Compare the volume of water that flows through a pipe per second. Than one Ah is the volume that passes during an hour.That tells little about the energy that the river may deliver.

But if you know that the pipe goes down 100meters, then you also know the pressure at the bottem end (~10 Ato) and then you can calculate the energy that that water stream may deliver (the weight/volume multiplyed with pressure/height), or the energy per second, which equals the power.Similar with electricity the voltage is the same as the pressure.So if the battery can store 30 Ah at 12 volt, it stores an energy of 30x12 = 360 VAh = 360 Wh. If it can deliver all that energy in 3 hours, then it can deliver 360/3 = 120 W during 3 hours.

A battery can store and deliver its energy a certain number of times (e.g. 5,000 times).So the price of a battery expressed as costs per Wh (=Voltage x Ampere x hours ) tells not enough.

A battery of 10KWh (=1000Wh=1000VAh) that can load / unload 10,000times is more valuable than a battery that can do that only 1,000times (and also needs maintenance such as lead-acid batteries).Those lead-acid batteries require maintenance that many households will not do, and last only 3-6 years if loaded/unloaded each day (loadining during the day, unloading in the evening).

So while Li-ion batteries are more expensive to buy, in the end they are cheaper for most households as they do require little (if any) maintenance and may endure 15years (loading/unloading each day).

Now you have to calculate how much extra that battery adds to the costs of the produced electricity (per KWh). That is a less easy calculation.If a battery of 5KWh costs $900 and is loaded/unloaded fully 200 times a year during 15years, than the costs per stored/delivered KWh is calculated as: 900/15 = $60 / year (assume zero interest rate).For that $60 it delivers 200 times 5KWh which is 1000Kwh. So per KWh the costs are 60/1000 = $6cent / KWh.(assuming no maintenance, no interest, rest value after 15years=zero)

I believe it's this simple. Amps times volts = watts. Amps is like the amount of water, volts is like the pressure. But all I know is that the li-ion battery in the phones go out like every year. The lead acid that require maintenence is actually cheaper than the ones I was talking about, which are called sealed lead acid - no maintenence.

A real utility scale battery storage system would involve either flow batteries or the better lifepo4. I believe that all li-ions (including the lifepo4) are labor intensive because they are still so costly. I remember someone telling me that battery storage is like only 2 diminsional (but wrapped up to mimic 3-d, but something like molten salt heat storage or pumped water is actually like 3-d - much easier (but perhaps less efficient).

Molten salt heat and pumped storage require a spinning turbine/generator to generate electricity, so not suitable for households.

The German household battery subsidy of ~30% is a succes. Taken into account the low Feed-in-Tariff in Germany (for households now 13.2cent/Kwh, while consumed electricity costs 28cents/KWh) it may result in a situation that most new rooftop solar will be equipped with battery storage (the subsidy is only for small rooftop installations <10KW).

While owners of storage systems certainly should be allowed to supply ancillary services, there's a problem. The problem is a matter of scale. The ancillary services market isn't all that large. While payments for such services can make a big difference in economic viability of present storage systems, it's a market that could easily become saturated. That could wipe out incentives for the costly battery-based storage systems that are available today.

Utilities need to adopt a model in which they become suppliers of storage capacity as well as power. They can exploit large-scale energy storage technologies that are not available to individual consumers. Those non-battery technologies can deliver a much lower cost per kWhr than what is possible -- at least today and in the near future -- with batteries.

I don't think outright defection from the power grid is a serious thread. Being "self-sufficient" in energy may be psychologically comforting, but it's also very expensive. Most PV system owners will want to remain grid-connected; they'll just argue about the price of the kilowatt-hours that they utility buys from them.

What's missing here is a true accounting of the cost of storage on the price per kWh, especially when connected to a solar PV system.

Let's assume a typical commercial rooftop PV system of 4kW. We will assume that 50% of the 24 hour cycle is night, and 50% of the daytime hours are cloudy, giving us 25% capacity (not atypical for most locations), but we're going to add enough storage to increase that to 100% (or as close as we can manage), which means that typically our complete system will, during sunny hours, be sending 25% of its power to the grid and 75% of its power to the battery, so that when it's not sunny the battery will have enough stored energy to make up the difference. All of which means that our 4kW nameplate PV system, with storage, should be putting out 1kW continuously.

Since we're storing 18 hours of electricity per day, we will need 18 kWh of storage. And we will assume that the battery charges and discharges 100% during each daily cycle.

At $2/W installed (future cost projection), the 4kW system would have an installed cost of $8000, and can be expected to last 25 years (NREL). If li-ion batteries fall to $200/kWh (as per Elon Musk, above), which is roughly on a par with current cheapest technology (lead-acid), the battery pack would add $3600 of capital expenditure to the system.

But the unstated problem is that at 100% charge/discharge, a Li-ion battery only has about 400 cycles before its no longer efficient enough to use. Since the 25 year lifetime of the solar panels is 9125 days, you're going to have to replace your battery pack 23 times in that 25 years. Total capital expense for the batteries over the life of the system is therefore $3600x23=$82,800.

In other words, even assuming li-ion becomes as cheap as lead-acid, putting in enough storage to make solar dispatchable would increase the cost of solar by a factor of 10 times.

We are in early days of understanding battery technology. Not saying that any or all of the above will be commercialized but just as price will continue to decline over the next 10-20 years the number of cycles will continually rise.

By the way, the $200/kWh in price is only the near-term drop. There are plenty of signs that the price could easily drop to $100/kWh in the medium term.

I'm guessing you will have to come up with different assumptions for your calculations a year or two from now.

The cost of PV is also higher if the owners are paid the wholesale price for electricity, instead of the retail price. Lowering the price to wholesale, forces PV owners to pay transmission costs for using the grid as their "battery". Which is as it should be, since PV adds almost nothing to base load grid capacity, that can't be met more cost-effectively with new CCNG generators.

When capital cost is properly accounted for,as Mr Pickering explains, the economics of PV make no sense. The best use for PV is off the grid, where utility scale generation doesn't exist, and a little electricity is better than no electricity - regardless of the cost, locales in rural Alaska, the desert, or the mountains.

Utility scale locations with high solar capacity factors, with gas fired backup as part of the design might work economically, but these locations are few and far between. Plus, for the economics to "work", the enviornmental cost of out-sourcing US pollution to China for the manufacture of solar panels must be ignored.

In the end, there is no "free lunch", only a series of trade-offs that need to be considered to select the lowest cost, environmentally friendly approach that provides the electricity everyone needs.